Consider a company with A = $4.00, r = 0.30$/$/year, and cost of stocking cs =

$0.50/year. There are two items (X and Y ) having the same annual demand rate, D = 10 units/year and unit value v = $6.00/unit. However, the transactions for item X tend to be larger than those for item Y , namely, the average transaction size for X is 5 units while that for Y is only 2 units.

a. Show, using Section 8.7, that X should not be stocked and Y should be stocked.

b. Why are the decisions different for the two items? lpo897